Excise cut leads to Rs 1/litre profit for OMCs

IOC has been pleading with the government to move petrol back to a controlled regime

After two months of losses, oil marketing companies (OMCs) have started making profits on sale of petrol, thanks to the softening global price and an excise cut announced by the government last week.

The OMCs have begun making a margin of around Rs 1 on every litre sold. The three — Indian Oil, Bharat Petroleum and Hindustan Petroleum — were losing around Rs 6 on every litre of petrol in the first fortnight of this month. To prevent any price increase in petrol, the government last Thursday cut the excise duty by Rs 5.30 a litre. Until then, it was charging Rs 14.78 through excise on every litre. The move almost covered the loss that the OMCs were incurring on petrol.

OMCs review petrol prices in tune with the international price on a fortnightly basis. Based on the international petrol pricing of the previous fortnight, the OMCs’ margin on petrol moved into positive territory from Sunday. The average international price softened from $126.1 per barrel during the second fortnight of August to around $122 in the first fortnight of September. The dollar-rupee exchange rate has fallen marginally from Rs 55.58 to Rs 55.45 between the two fortnights.

Every dollar decline in global petrol improves margins by Rs 0.34 on every litre of petrol; every Rs 1 strengthening against the dollar has a positive impact of Rs 0.74 on a litre. An industry official said the margin was desperately needed, as the companies have incurred heavy losses on petrol. Its price was formally decontrolled in June 2010 but the OMCs, all government-owned, have not been allowed to align it with market rates on a regular basis due to political compulsions.

Consequently, they have not made any profit on petrol in the two financial years following the decontrol. The three OMCs together lost Rs 2,300 crore in the first year of decontrol. The loss on petrol expanded to Rs 4,890 crore during 2011-12.

Losses continue in the current financial year, too, with Indian Oil alone losing Rs 950 crore in the first quarter ended June 30. The company has been pleading with government to move petrol back to a controlled regime, so that the loss gets compensated by the government, as happens in diesel, kerosene and domestic cooking gas.